Wireless Carriers Snap Up New Spectrum Licenses

— September 20, 2006

The Federal Communications Commission auction of 1,122 licenses, which could end as early as today, would be the largest successful wireless auction in history, raising $13.9 billion. A 2000 auction that raised $16.9 billion was overturned by a legal dispute.

"This is the largest amount of spectrum we've ever made available," says FCC Chairman Kevin Martin.

Big wireless carriers -- T-Mobile, Verizon Wireless and Cingular -- are among the top winners, accounting for 60% of total bids. They're expected to use the airwaves to enhance advanced services, such as wireless Internet and video, and improve voice coverage.

But the biggest new competition may come from two regional players, MetroPCS and Leap Wireless, both among the top 10 bidders. The two carriers offer unlimited local calling for about $35 a month, targeting college students, ethnic audiences and lower-income groups. They also have persuaded many consumers to cut the cord and use their services as substitutes for home landline service.

After winning bids of $1.4 billion, MetroPCS is poised to expand into new markets such as New York City and Las Vegas. Leap, with $710 million in bids, would enter cities such as Philadelphia, Washington, D.C., Milwaukee, New Orleans, Minneapolis and Raleigh, N.C. At least one of the services would be available in every major market, up from half of such markets today, says analyst Jonathan Atkin of RBC Capital Markets.

Like other auction bidders, neither company would comment, citing FCC rules barring them from discussing their plans.

Fresh competition also may come from a consortium owned by Comcast, Time Warner and Cox, which is the third-place winner, bidding $2.4 billion for licenses in large cities. The companies now have a three-year partnership with Sprint that could let them add the carrier's wireless service to bundles that include TV, voice and broadband.

The new spectrum would allow the cable giants to offer their own cellphone service in three years if the Sprint venture fizzles, Atkin says. That, he says, would add a fifth big wireless rival in major markets.

Meanwhile, the top wireless carriers have solidified their strongholds. No. 4 T-Mobile is emerging as the big overall winner, with $4.2 billion in bids for 119 licenses, largely in metro areas such as New York, Los Angeles and Chicago. Of the four national wireless carriers, only T-Mobile lacks sufficient spectrum to offer advanced services such as video and music and is expected to use its new airwaves to fill that gap.

"Now, they can go toe to toe with the big boys," Ovum analyst Roger Entner says.

Verizon Wireless is the No. 2 winner, with $2.8 billion in bids, while Cingular is No. 5, with $1.3 billion. Entner says they will likely use the airwaves to offer faster video and other advanced services. But Atkin says their priority is expanding capacity to handle 25% annual growth in voice usage.

It could take at least a year for the new services to roll out, says Jessica Zufolo of Medley Global Advisors.

The auction began Aug. 9. It will end when there are no more bids or withdrawals.

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